•^:Sil 


Market  Tnfo-rmition 

Hyron  V.   Holt 
and 
/Arthur  V'illiams,    Jr. 


Market  Information 


By 

BYRON  W.  HOLT,  A.B. 

Manager  of  Investment  Department,  Coodbody  &  Co.      Editor  of 

Moody's  Magazine,  1905-08.     Manager  of  Investment  Department, 

Warren  W.  Erwin  &  Co.,  1908-17. 

AND 
ARTHUR  WILLIAMS,  JR.,  A.B. 

Statistician,  Bankers   Trust    Co. 


AMERICAN  INSTITUTE  OF  FINANCE 


Market  Information 


By 

BYRON  W.  HOLT,  A.B. 

Manager  of  Investment  Department,  Coodbody  &  Co.      Editor  of 

Moody's  Magazine,  1905-08.     Manager  of  Investment  Department, 

Warren  W.  Erwin  &  Co.,  1908-17. 

AND 
ARTHUR  WILLIAMS,  JR.,  A.B. 

Statistician,  Bankers    Trust    Co. 


AMERICAN  INSTITUTE  OF  FINANCE 
BOSTON 


OUR 

"COMPLETE   EDUCATIONAL   COURSE" 

IN  THE  SCIENCE  OF 

MAKING   MONEY  MAKE   MORE   MONEY 

This  list  is  arranged  in  the  order  of  proper  reading.  The 
books  are  accompanied  by  a  series  of  test  questions,  key  prob- 
lems and  analyses  outlines,  enabling  the  student  to  apply  the 
knowledge  acquired  to  immediate  stock  market  and  investment 
conditions. 

1.  Developing  Financial  Skill      IL  Investment  Securities 

2.  Forces  Which  Make  Prices      12.  Business  Cycles 

3.  Manipulation  and  Market      ^^-  ^^^^^^ring   and   Forecasting 

General    Business    Condi- 


Leadership 

4.  Handling  a  Brokerage  Ac- 

count 

5.  Market  Information 


tions 

14,  The  Technical  Position  of  the 

Market 

15.  Money  and  Credit 


6.  The  Essential  Features  of      15.  Business  Profits 

Securities 

17,  Launching  a  New  Enterprise 

7.  The   Value  of  a  Railroad 

Security  ^^-  Securing  Capital  for  Estab- 

lished Enterprise 

8.  Industrial  Securities 

19.  Internal  Finaticial   Manage- 

9.  Oil  Securities  ment 

10.  Mining  Securities  20.  Search  for  Bargains 


Copyright,   1922.  by 
American  Institute  of  Finance 


H7^ 


TABLE  OF  CONTENTS 


Chapter  I.     The  Basis  of  Foresight 
Two  Important  Questions 
A  Market  not  Often  Surprised 
A  Sudden  Reversal  of  Trend 
The  Subscriber's  News  Problem    . 


PaSe 
5 

5 
6 
6 


Chapter  II.     The  Sources  of  Market  News 

Wall  Street's  News  System 
Chief  Sources  of  News 
Government  Reports 
Investigations     . 
Original  Documents 
Official  Reports 
Stock  and  Bond  Quotations 

Rumors 

What  the  Leak  Was 
The  Prelude  to  Fact 
Rumor  Mongering 
Analyses  and  Write-Ups 


9 
10 
11 
11 
12 
12 
13 
14 
15 
15 
16 


Chapter  III.     The  Distribution  of  Market  News 

Channels  of  Distribution 

I.  Stock  and  News  Tickers 

II.  News  Slips 

III.  Daily  Papers 

IV.  Weekly  and  Monthly  Periodicals 

V.  Card  Systems 

\T.  Statistical  Manuals 

VII.  Market  Letters 


18 
18 
19 
19 
21 
21 
22 
22 


X 


^ 


Chapter  IV.     "Who  Says  It  and  Why?" 


What  Readers  May  Rightfully  Expect 
The  Financial  Writer's  Difficulty 

"Influence" 

Why  Papers  are  Bullish 
What  the  Public  Wants 
The  Broker         


23 
24 
25 
26 
26 
27 


447458 


4  T'a  ble   of   Contents 

Chapter  IV.     "Who  Says  It  and  Why?"  {continued)  p^^^ 

Broker's  Market  Letters 28 

The  Tipster 29 

Newspapers'  Retail  Tips 30 

Information  Which  Yields  Profit 32 

Chapter  V.     Charts 

Needed,  a  Bird's-Eye  View H 

The  Use  of  Graphics 33 

Fundamentals  Charted 34 

Stock  Market  Averages  Charted 34 

Charts  of  the  "Average  Movements" 35 

Individual  Stocks  Charted 36 

Choices  of  Charts 37 

Another  Type  of  Chart 38 

Chapter  VI.     What  System  Means  in  Finance 

Taking  Advantage  of  Opportunities 39 

A  Clear  Aim 40 

Carefully  Formulated  Plans 40 

Consistent  Execution  of  Plans 41 

Evaluation  of  Results 43 

Financial  Management 43 

Who  Directs  the  Enterprise? 44 

The  Use  of  the  Bulletin  Service ^  ...  44 

Test  Questions 

Answers  to  Starred  Questions 


CHAPTER  I 

THE  BASIS  OF  FORESIGHT 

"Risk  is  nothing  but  an  expression  of  ignorance,  which 
decreases  as  we  make  progress  in  lifting  the  veil  that  hides 
the  future.'' 

— Irving  Fisher,  Prof,  of  Economics,  Yale  University. 

Two  Important  Questions 

The  point  has  now  been  reached  where,  having  inquired 
into  the  forces  which  make  prices  and  the  securities  upon  which 
these  forces  operate,  it  is  essential  to  find  out  how  we  personally 
can  secure  information  bearing  upon  these  two  essentials,  viz., 
market  forces  and  individual  securities.  The  market  moves  as 
far  ahead  as  the  shrewdest  operators,  possessed  of  the  most 
accurate,  early,  and  complete  information  available,  can  see; 
and  when  events  have  become  common  knowledge  usually  their 
influence  has  already  had  its  effect  upon  prices.  In  other  words, 
they  have  been  discounted.  Thus  the  problem  of  market  infor- 
mation must  be  approached  in  a  forward-looking  way. 

How  can  we  secure  accurate  information  earlier  than  others? 

How  can  we  reap  the  most  profits  from  this  advantage? 

These  are  important  questions,  to  which  consideration  will 
now  be  given. 

A  Market  not  Often  Surprised 

The  eagerness  with  which  information  is  sought  in  Wall 
Street  impresses  even  the  outsider  as  a  thing  characteristic  of  the 
financial  district.  "What's  the  news?"  is  a  common  form  of 
greeting  when  one  operator  meets  another  casually.  These 
Wall  Street  men  are  out  on  the  fringe  of  things,  trying  to  see 


Market    In  f  o  r  m  a  t  i  o  n 


what  lies  ahead;  hence  their  interest  in  news  and  their  strenuous 
endeavor  to  secure  it.  Under  no  other  system  have  the  facihties 
for  securing  early  and  accurate  information  been  so  perfected  as 
in  the  financial  centers  where  organized  speculation  is  carried  on. 
Wall  Street  may  be  caught  napping,  but  not  very  often. 


N.  Y.  Tribune 


Pull  Your  Chair  Right  up  to  the  Table,  Sonny, 


Atchison 

Baltimore  &  Ohio. 
St.  Paul  Preferred. 
Northern  Pacific.  . 
Southern  Pacific.  . 
Union  Pacific 


Wednesday 
Closing 

78 

39% 
63  M 
75M 
77% 
103% 


A    Sudden    Reversal 
of  Trend 

The  announcement 
late  in  1917,  during  the 
slump  that  the  Gov- 
ernment was  to  guar- 
antee the  railroads  their 
pre-war  earnings,  ap- 
peared in  the  morning 
papers,  December  27. 
It  produced  an  em- 
phatic change  of  front 
among  railroad  shares. 

The  unusualness  of 
the  price  changes  cited 
below  is  a  tribute  to 
the  accuracy  with 
which  events  in  general 
are  forecasted,  and  their 
effects  discounted. 
Market  operators  are 
seldom  caught  nap- 
ping. 


Thursday 
Opening 

87>^ 

55 

81 

85 

84 

112 


Gain 

17% 
9% 
6% 
8% 


The  Subscriber's  News  Problem 

What  does  this  mean  to  the  subscriber?     Supplied  with  the 
most  accurate  and  early  information  upon  present  events  and 


T  he  B  a  si  s   of  Foresight  7 

past  events  feasible  for  him  to  obtain,  his  mind  then  deduces 
its  conclusions  as  to  what  later  will  take  place.  The  more  cor- 
rect these  conclusions  the  greater  his  percentage  of  profits.  The 
importance  of  sound  information  requires  no  further  comment 
than  this. 

Nevertheless,  in  this  Text,  we  by  no  means  want  the  sub- 
scriber to  forget  that  always  the  most  important  factor  is  the 
ability  to  analyze,  differentiate,  and  deduce  correctly.  This  is 
our  basic  reason  for  this  entire  Educational  Course  —  knowing  as 
we  do  that  to  sift  the  mass  of  facts  and  opinions  found  in  Wall 
Street  requires  the  clearest  thinking  and  most  careful  considera- 
tion. In  this  Text,  we  assist  you,  as  far  as  possible,  in  the  first 
essential,  the  study  of  the  use  and  abuse  of  financial  news  items, 
in  fact  of  financial  literature  of  all  types. 


CHAPTER    II 


THE  SOURCES  OF  MARKET  NEWS 


Wall  Street's  News  System 

Those  who  deal  in  securities  can  organize  their  own  means  of 
securing  news,  should  they  see  fit,  as  certain  of  the  larger  opera- 
tors and  concerns  do  to  some  extent.  But  specialists  have  come 
into  this  field,  whose  results  are  so  superior  that,  as  a  rule,  the 
average  trader  recognizes  that  competition  with  them,  each  man 
for  himself,  would  be  futile.  It  is  with  these  results  of  the  news 
specialists,  those  who  go  to  make  up  what  may  be  termed  Wall 
Street's  news  organization,  that  we  are  here  concerned. 

News  may  be  divided  into  three  classes,  the  first  having  to 
do  with  fundamental  conditions  determining  the  movement  of 
the  market  as  a  whole,  the  second  having  to  do  with  particular 
industries  such  as  copper,  steel,  rubber,  etc.,  the  third  concerning 
individual  companies. 

These  classes  intermingle  and  vary  in  each  instance  but  a 
rough  general  division  of  a  few  of  the  items  making  up  "news" 
may  be  made : 


Fundamental  Conditions 

Domestic  Trade 

Crop  Reports 

Business  Conditions 

Labor  Conditions 

Bank  Statements 

Bank  Clearings 

Interest  Rates 

Price  Indices 

Stock  and  Bond  Transactions 

Stock  and  Bond  Prices 

Real  Estate  News 
Foreign  Trade 
Foreign  Exchange 
Domestic  Politics 
Foreign  Politics 
Legislation 


Particular  Industries 

Supply  and  Demand 

Prices 

Costs 

New  Markets 

New  Uses 

Substitutes 

Discoveries 

Inventions 

Legislation 


Individual  Companies 

Earnings 

Assets 

Dividends 

Acquisitions 

New  Financing 

Readjustments 

Reorganizations 

Management 


The  Sources   of   Market    News  9 

Chief  Sources  of  News 

We  shall  examine  first  the  chief  sources  of  these  news  items 
and  then  look  into  the  way  they  are  made  available. 
The  chief  sources  of  these  items  are: 

General  Conditions 

Government  Reports 

Crop  Weekly 

Crop  Monthly 

Weather  Daily 

Bureau  Reports 

Departmental 

Committee 

Treasury 

Monthly  Summary  of  Foreign  Commerce 

Consular 
Commercial  Agency  Reports 
Bank  Statements 
Clearing  House  Reports 
Stock  and  Bond  Markets 
State  Legislatures 
Congress 

Supreme  Court  Decisions 
Foreign  Legislative  and  Executive  Bodies 
Rumors 

Particular  Industries 

Trade  Journals 
Investigations 

Government 

Private 
Supreme  Court  Decisions 
Rumors 

Interstate  Commerce  Commission 
Public  Service  Commission 

Individual  Companies 

Annual  Reports 
Interim  Reports 
Directors'  Meetings 
Original  Documents 

Charters 

By-Laws 


10  Market   Information 

Individual  Companies 

Original  Documents  {continued) 

Mortgages 

Leases 

Listing  Notices 

Reorganization  Plans,  etc. 
Official  Statements 
Supreme  Court  Decisions 
Rumors 

Government  Reports 

These  reports  are  summaries  of  the  activities  of  the  various 
departments.  As  a  result  of  the  government's  varied  facilities 
and  ability  to  get  at  facts  kept  from  the  ordinary  investigator 
they  are  usually  comprehensive  and  generally  regarded  as  most 
reliable.  They  are  released  from  Washington,  either  by  wire  at 
a  certain  hour,  mailed  to  the  various  newspapers  for  publication 
on  a  certain  date,  or  otherwise  published. 

Crop  and  Weather  Reports  give  details  as  to  acreage  planted, 
condition  of  the  various  crops  as  of  a  certain  date,  and  present 
weather  conditions.  They  cover  winter  wheat,  spring  wheat, 
corn,  cotton,  rye,  barley,  etc.  They  are  important  not  only  to 
speculators  in  the  various  commodities,  but  to  all  business  men, 
as  they  are  indicators  of  future  food  supply,  railroad  traffic,  and 
rural  prosperity. 

Bureau  and  Departmental  Reports  are  usually  issued  annually 
by  the  Secretary  of  the  department  of  the  bureau  head.  Among 
the  most  important  are  those  of  the  Secretary  of  Commerce,  the 
Secretary  of  Agriculture,  the  Secretary  of  Labor,  and  the  Secre- 
tary of  the  Treasury.  The  United  States  Geological  Survey  of 
the  Interior  Department  also  issues  a  comprehensive  annual 
report  covering  metals  and  non-metals.  The  Treasurer  of  the 
United  States  publishes  reports  once  or  twice  a  year  covering 
the  circulating  media  and  the  condition  of  the  National  Banks. 
These  reports  are  usually  out  of  date  by  the  time  they  are  made 
public  but  make  a  dependable  basis  for  comparison  with  present 
conditions.  The  Federal  Reserve  Bulletin,  which  is  published 
monthly,  covers  the  condition  of  the  Federal   Reserve    Banks, 


The   S  0  ur  c  e  s   of   M  a  r  k  et    News  11 

member  banks,   the  slate  of    trade  in   the  various  reserve  dis- 
tricts, and  various  other  important  subjects. 

The  Department  of  Commerce  pubUshes  Daily  and  Weekly 
Reports  summarizing  reports  of  trade  and  consular  agents  in 
regard  to  conditions  in  all  parts  of  the  world. 

Investigations 

The  investigation  purports  to  be  a  serious  and  somewhat 
penetrating  attempt  to  get  at  the  facts. 

The  reports  submitted  by  accountants,  appraisers,  engineers, 
and  other  technical  experts  belong  to  this  class,  particularly  when 
prepared  by  persons  of  high  standing  professionally. 

The  Government  occasionally  conducts  investigations,  not 
infrequently  of  an  inquisitorial  nature.  During  the  War  the 
Federal  Trade  Commission  made  many  investigations  to  de- 
termine fair  prices,  supply,  demand,  etc.  Among  the  industries 
covered  were  paper,  rubber,  and  meat  packing.  Nowhere  can 
more  accurate  or  more  complete  information  in  regard  to  the 
industries  touched  be  found  than  in  these  reports.  The  Royal 
Ontario  Nickel  Commission  has  published  a  most  interesting 
report  on  the  world's  production  and  use  of  nickel.  The  State 
of  New  York  has  put  out  a  report  on  the  water  power  of  the 
state.  Banks,  bond  houses,  and  brokerage  offices  frequently 
make  studies  of  corporations,  although  their  work  as  a  rule  lies 
not  so  much  in  investigation  as  in  interpretation. 

The  investigator  more  times  than  not  does  not  rest  content 
with  presenting  the  facts,  but  proceeds  to  attach  his  opinions 
marketwise.  He  then  has  assumed  the  role  of  analyst,  and  what 
he  says,  as  we  shall  point  out  later,  must  be  examined  critically. 

Original  Documents 

Original  documents  in  the  sense  here  used  are  first-hand 
evidence  of  certain  important  events  in  a  corporation's  history. 

These  documents  comprise  charters,  by-laws,  franchises, 
leases,  mortgages,   "pooling"  agreements,  reorganization  plans, 


12  Market   In  for  m  alio  n 

etc.  The  description  of  property  and  of  particular  bond  issues 
should  be  made  only  upon  exaiiiination  of  these  original  sources. 
The  use  of  secondary  authorities,  instead  of  these  original 
documents,  is  unfortunately  very  common.  The  syndicate  pre- 
pares its  announcements  with  these  documents  before  it,  select- 
ing therefrom  such  items  as  meet  its  needs,  but  those  who  pass 
along  blocks  of  the  issue  in  the  process  of  retailing  prepare  their 
circulars  from  information  furnished  them,  until  finally,  even 
when  each  dealer  has  been  of  honest  intent,  an  investor  receives 
from  some  dealer  five  or  six  steps  removed  from  the  syndicate  a 
circular  into  which  various  discrepancies  have  crept. 

Official  Reports 

The  tendency  toward  corporation  publicity,  which  has  grown 
to  an  extent  which  only  an  old-timer  can  appreciate,  results  in 
the  publication  of  data  each  ^-ear  that  persons  formerly  were 
obliged  to  guess  at. 

These  reports  include  items  such  as  gross  earnings,  net  earn- 
ings, appraisals  of  plants  and  machinery,  dividends  declared, 
and  balance  carried  to  surplus.  Very  commonly  such  reports 
are  mailed  to  stockholders  and  distributed  to  the  press. 

Listing  Statements  made  to  the  New  York  Stock  Exchange 
are  perhaps  the  most  reliable  of  all  company  reports.  Before 
the  stocks  or  bonds  of  any  corporation  are  admitted  to  trading,  a 
sworn  statement  must  be  made  to  the  board  of  governors  of  the 
exchange  covering  assets,  recent  earnings,  the  sections  of  the  by- 
laws dealing  with  the  issue  in  question,  control  of  the  company, 
directors,  etc.  These  statements  are  published  by  the  Stock 
Exchange  when  the  securities  are  admitted  to  the  list. 

Stock  and  Bond  Quotations 

Most  people  do  not  look  upon  security  quotations  in  the 
light  of  information  valuable  to  them  in  their  commitments; 
in  fact,  how  many  people  with  considerable  experience  in  the 
market,  if  asked  to  name  the  various  sources  of  information  would 
include  quotations  in  the  list?     Of  course,  they  look  at  them,  but 


The   Sources   of   Market    News  13 

when  it  comes  to  looking  into  tliem,  imaly/.ing  them,  comparing 
them,  drawing  profitable  suggestions  from  them,  they  have  never 
thought  of  that. 

This  attitude  is  wrong  since  considerable  use  can  be  made 
of  these  quotations  marketwise.  There  is  much  truth  in  the 
view  that  the  proper  subject  of  study  in  the  market  is  the  market 
itself. 

Rumors 

There  can  scarcely  be  anything  more  characteristic  of  Wall 
Street  than  its  never-ending  crop  of  rumors.  They  often  are 
puzzling  to  deal  with  but,  since  their  effect  upon  the  market 
year  in  and  year  out  is  decidedly  important,  they  should  be 
examined  into.  The  "peace  leak"  which  aroused  w^ide  publicity 
and  exerted  a  strong  influence  upon  the  market  in  December, 
1916,  will  serve  the  purpose  of  a  useful  example. 

The  afternoon  of  December  20,  1916,  at  2:05,  this  item  ap- 
peared upon  the  news  ticker: 

The  renewed  selling  of  the  market  is  due  to  reports  received  by  brokers' 
private  wires  from  Washington  to  the  effect  that  the  administration  will  in 
the  near  future  address  to  the  belligerants  some  suggestion  or  proposals  in 
regard  to  peace.     Nothing  definite  is  obtainable  in  administration  circles. 

The  market  had  held  a  fairly  steady  course  during  the  fore- 
noon, with  U.  S.  Steel  fluctuating  round  112.  But  about  one 
o'clock  selling  pressure  developed,  which  shortly  forced  Steel 
below  111;  and  throughout  the  rest  of  the  day  it  was  a  matter 
of  big  blocks  and  lower  prices.  Steel  closed  at  108,  off^  four  points 
for  the  day.  The  next  morning  the  newspapers  featured  a 
"peace  note"  addressed  to  all  the  belligerent  powers  by  Presi- 
dent Wilson.  As  at  that  time,  war  was  a  bull  argument,  the 
market  opened  in  panicky  condition.  Under  a  volume  of  trad- 
ing which  was  the  second  largest  on  record,  3,176,800  shares, 
prices  were  slaughtered.  Steel  closed  at  101,  ofif  seven  points. 
Those  who  sold  short  the  day  before  made  a  "killing". 

It  appeared  that  there  had  been  a  "leak".  The  sensational 
Lawson  charged  a  member  of  the  Cabinet,  a  U.  S.  Senator  and 


14  Alarket   Information 

a  banker  with  having  operated  upon  their  advance  information 
and  others  claimed  the  President's  Secretary  and  the  German 
Ambassador  were  also  in  on  the  deal.  Congress  decided  upon 
an  investigation. 

W^^hat  the  Leak  Was 

It  transpired  that  at  eleven  o'clock  on  the  morning  of  Decem- 
ber 20,  Secretary  Lansing  had  informed  newspaper  reporters  in 
strict  confidence  that  he  would  have  an  important  communica- 
tion for  them  at  five.  He  added  that  this  communication  had 
been  sent  to  all  belligerent  nations,  but  that  it  did  not  contain 
proposals  for  peace  nor  an  offer  of  mediation.  Within  an  hour 
Wm.  W.  Price,  a  reporter  stationed  at  the  White  House,  who  had 
arranged  to  supply  certain  brokers  with  information  likely  to 
affect  the  market,  his  fee  being  $25  per  month  per  broker,  had 
heard  of  this  communication  from  some  of  those  present.  Under 
an  assumed  name,  he  dispatched  his  interpretation  of  it  to  a 
Chicago  broker: 

Finlay,  Barrel  &  Company: 

Am  informed  that  State  Department  contemplates  making  public  late 
this  afternoon  important  statement  bearing  on  economic  situation  of  the 
European  war  as  affecting  neutrals,  object  being  to  indirectly  promote  peace 
prospects  through  bringing  neutrals  closer  together. 

J.  Fred  Essary,  the  Washington  correspondent  of  the  Balti- 
more Sun,  hearing  of  the  note,  telegraphed  to  New  York: 

E.  F.  Hutton  &  Company: 

I  am  informed  that  a  highly  important  message  to  all  belligerents  and 
neutrals  has  been  issued  from  Washington,  interpreted  not  as  pressure  on 
belligerents  in  behalf  of  peace  but  as  an  opportunity  to  put  American  de- 
mands on  record,  to  be  considered,  if  there  is  peace,  and  warning  that  neutral 
rights  must  not  be  further  encroached  upon.  Full  text  to  be  given  out  tonight 
and  will  be  looked  on  as  a  move  of  great  moment. 

The  brokers  who  received  these  messages  promptly  passed 
them  along  to  their  correspondents  and  when  w  ithin  a  short  time 
Dow-Jones  printed  the  item  upon  their  ticker  service,  the  rumor 
was  pretty  thoroughly  out.  The  next  morning  it  was  no  longer 
rumor  but  fact. 


The   Sources   of   Market    News  15 

The  Prelude  to  Fact 

These  advance  inklings  of  things  which  later  do  transpire  are 
very  common  in  Wall  Street.  The  big  operator,  it  is  true,  would 
like  to  carry  out  to  the  letter  Daniel  Drew's  dictum,  "Never 
tell  nobody  what  yer  goin'  to  do,  till  you  do  it";  but  this  is  not 
always  feasible.  Conferences  are  commonly  required ;  papers 
have  to  be  drawn  and  records  kept;  lawyers,  clerks,  stenogra- 
phers, printers,  messengers,  telephone  and  telegraph  operators 
have  to  a  certain  extent  to  be  taken  into  confidence.  All  of  these 
persons  are  human  and  certain  of  them  most  inquisitive,  par- 
ticularly when  they  are  approached  by  a  seeker  of  news  who 
offers  various  inducements  to  obtain  what  he  wants.  The  more 
prominent  and  successful  the  operator,  the  more  there  are  who 
spy  upon  him  and  try  to  follow  his  every  move. 

Very  few  important  deals  go  far  until  it  commences  to  be 
rumored  around  the  Street  that  "something  is  up". 

Upon  hearing  of  these  rumors,  operators  attempt,  often  with 
marvelous  skill,  to  deduce  from  the  rumors'  shadowy  fragments 
a  tolerably  accurate  forecast.  The  attempt  is  worth  while  since 
much  of  Wall  Street's  authentic  news  first  passes  current  as 
unconfirmed  rumor. 

Rumor  Mongering 

The  rumor  which  is  a  prelude  to  fact  and  the  rumor  spun 
wholly  from  some  fertile  brain  are  two  different  things,  however. 
Unfortunately,  Wall  Street  is  even  more  full  of  the  latter  than  the 
former. 

Very  frequently  these  never-to-be  confirmed  rumors  originate 
in  the  attempt  to  explain  the  market's  action.  The  market  is 
going  up;'  no  one  knows  why.  Numerous  brokers  on  the  floor 
are  called  to  their  telephones  to  account  for  the  move;  they  can- 
not at  first.  Then  springs  up  as  though  by  magic  a  rumor  in  full 
bloom.  "The  Interstate  Commerce  Commission  has  granted  a 
fifteen  percent  increase  in  rates."  The  brokers  call  their  offices, 
the  'phone  clerks  read  in  loud  tones  the  message  in  their  cus- 
tomers' rooms,  it  is  wired  to  hundreds  of  branch  houses  —  all 


16  Market   1 72  f  or  mat  ion 

these  persons  supposedly  labeling  it  as  rumor  although  as  it 
passes  from  hand  to  hand  this  label  not  infrequently  becomes 
lost.  The  papers  next  morning  are  silent  upon  the  Interstate 
Commerce  Commission,  and  the  rumor,  having  served  its  turn, 
dies  a  natural  death.  Wall  Street  must  have  reasons,  even  if  it 
has  to  invent  them. 

The  inventor  of  this  rumor,  however,  what  of  him?  Was  he 
simply  a  harassed  broker  offering  snap  judgment  upon  the  cause 
of  the  rise;  or  was  he  an  operator,  more  adroit  than  scrupulous, 
wanting  to  get  rid  of  his  long  stock  or  put  out  some  shorts  a 
point  or  two  higher? 

The  Governors  of  the  Stock  Exchange  have  at  different  times 
attempted  to  stamp  out  the  circulation  of  sensational  and  mis- 
leading rumors,  their  latest  pronouncements  being  "that  circula- 
tion in  any  manner  of  rumors  of  a  sensational  character  by  mem- 
bers of  the  Exchange  or  their  firms  will  be  deemed  a  detriment 
to  the  interest  and  welfare  of  the  Exchange.  Further,  that  all 
members  of  the  Exchange  shall  report  to  the  secretary  of  the 
Exchange  any  information  which  comes  to  their  notice  as  to  the 
circulation  of  such  rumors,  and  all  houses  having  correspondents 
with  whom  they  have  private  wire  connections  shall  obtain  and 
report  to  the  secretary  of  the  Exchange  any  information  as  to 
such  rumors  that  come  to  the  attention  of  their  correspondents." 

The  Governors,  we  sincerely  trust,  will  decrease  the  volume 
of  rumors  at  the  same  time  they  improve  the  quality;  but  even 
Governors  of  the  Exchange  can  scarcely  expect  to  bring  about  a 
cessation  of  them. 

Analyses  and  Write-Ups 

What  do  all  these  facts  and  rumors  mean?  Will  stocks  go 
up  or  down?  These  are  questions  which  the  average  man  — 
confronted  with  material  piled  so  high  before  him  that  to  read 
it  all  would  consume  his  entire  time  and  in  the  end  likely  leave 
him  so  confused  he  could  scarcely  tell  whether  U.  S.  Steel  makes 
rails  or  locomotives  or  molasses  —  asks  before  he  goes  very  far. 
What  he  really  wants  is  that  some  one  will  save  him  the  work  of 
digesting  this  information. 


The  Sources   of   Market    News  17 

The  analyst,  or  trained  student  of  the  market,  does  this 
really.  He  works  through  current  materials,  original  documents, 
official  reports,  rumors  a^nd  other  sources  of  information;  com- 
pares, classifies,  rejects  and  selects;  until  finally  the  gist  of  his 
effort  becomes  available  as  the  basis  for  a  market  forecast.  He 
has  no  personal  interest  in  the  outcome,  save  that  it  enables  his 
readers  to  reach  correct  conclusions  and  thereby  profit  in  their 
market  ventures. 

The  person  responsible  for  write-ups  supposedly  goes  through 
the  same  careful  process  of  reaching  conclusions.  His  write-up, 
however,  is  not  based  upon  the  same  serious  effort  nor  is  it 
inspired  by  the  same  disinterested  motive.  Usually  it  represents 
opinion  merely,  without  the  slightest  of  foundation,  and  often 
its  purpose  is  deliberately  to  deceive. 

In  view  of  the  high  degree  of  skill  required  and  the  laborious 
process  involved  in  reaching  sound  conclusions,  students  of  the 
market  worthy  to  be  termed  analysts  are  very  few.  By  similar 
token,  the  conclusions  stated  by  them  have  a  high  value. 


CHAPTER   III 
THE  DISTRIBUTION  OF  MARKET  NEWS 

Channels  of  Distribution 

Now  that  we  have  surveyed  the  sources  of  information,  let 
us  consider  the  news  channels  through  which  this  information 
reaches  the  millions  of  persons  interested  in  the  market. 

These  channels  are  in  the  main  seven,  each  of  which  dips  into 
the  common  reservoir  called  news,  selects  that  which  it  prefers, 
works  it  up  in  whatever  way  it  sees  fit,  and  lays  the  results  before 
its  readers : 

I.  Stock  and  News  Tickers 
II.  News  Slips 

III.  Dai  y  Papers 

IV.  Weekly  and  Monthly  Periodicals 
V.  Card  Systems 

VI.  Statistical  Manuals 
VII.  Market  Letters 

I.  Stock  and  News  Tickers 

The  operation  of  the  stock  quotation  ticker  was  described  in 
Text  I,  hence  this  channel  of  distribution  need  not  be  discussed 
again  at  this  point. 

The  news  ticker  operates  in  practically  the  same  way  as  the 
stock  ticker,  save  that  it  prints  reading  matter  upon  paper  sev- 
eral inches  wide.  In  the  news  bureaus'  headquarters,  an  op- 
erator spells  out  the  messages  upon  a  keyboard  which  has  elec- 
tric connection  with  machines  installed  in  the  offices  of  the  leading 
brokers  in  New  York  and  elsewhere. 

The  two  competing  companies  which  supply  news  ticker  ser- 
vice, the  New  York  News  Bureau  and  Dow-Jones  and  Company, 


The   Distribution    of  Market    News    19 

have  built  up  news  gathering  staffs  of  decided  proficiency. 
They  have  reporters  hovering  on  the  trail  of  practically  all  im- 
portant events  which  are  pending  marketwise,  and  these  men 
keep  turning  into  headquarters  throughout  the  day  a  pretty 
steady  stream  of  news.  This  information  is  edited,  and  put  upon 
the  ticker. 

These  news  tickers  are  the  most  rapid  of  the  various  channels 
of  distribution. 

II.  News  Slips 

The  tickers,  even  though  they  operate  continuously  during 
the  market  day,  cannot  print  the  news  with  the  completeness 
desired  in  a  big  financial  center.  Hence  they  are  supplemented 
by  the  news  slip. 

These  news  slips  are  printed  upon  sheets  approximately  five 
by  ten  inches  in  size,  and  are  distributed  by  messenger  upon  a 
half  hour  schedule  from  nine  to  three.  While  they  contain  much 
more  information  than  the  news  ticker  and  are  delivered  with 
such  speed  that  the  ink  scarcely  is  dry,  the  service  necessarily  is 
less  rapid  than  the  ticker. 

The  relative  fullness  of  their  information,  however,  renders 
their  use  general  in  banks  and  brokerage  ofiices  in  New  York, 
Boston,  and  Philadelphia,  the  three  cities  in  which  the  service 
now  is  available. 

III.  Daily  Papers 

Daily  papers  devote  themselves  in  a  few  cases  exclusively  to 
financial  matters,  though  usually  they  confine  their  market 
news  to  the  financial  page,  with  various  supplementary  items 
appearing  elsewhere  in  the  paper. 

The  general  practice  of  dailies  is  to  place  the  financial  page 
under  the  charge  of  a  financial  editor  and  his  assistants.  Outside 
men,  that  is,  the  paper's  financial  reporters,  cover  the  curb 
market,  banks,  custom  house,  clearing  house,  brokerage  offices, 
etc.  They  rundown  rumors  and  interview^  or  attempt  to  inter- 
view, almost  everybody  whom  their  scent  for  news  reveals  as 
worth  seeing. 


20  M  a  r  k  e  t    I  n  f  0  r  m  a  t  i  on 

The  financial  editor  reserves  for  himself  what  by  common 
consent  is  regarded  as  the  most  difficult  task,  the  description 
and  analysis  of  the  day's  market.  These  financial  editorials 
cover  money  and  exchange  rates,  the  outlook  for  tax  reductions, 
railroad  earnings,  or  whatever  the  editor  believes  necessary  to 
explain  the  situation. 

The  paper  also  has  its  clerks  who  prepare  statistical  matter 
and  a  "morgue"  from  whose  files  can  be  drawn  data  concerning 
a  wide  range  of  subjects  and  securities. 

The  work  itself  must  be  done  with  rapidity  since  Wall  Street 
people  in  large  number  insist  upon  leaving  for  home  shortly 
after  three  o'clock  with  the  special  market  edition  under  their 
arms;  and  the  morning  edition  even,  must  contain  news  appear- 
ing up  to  within  a  brief  time  before  going  to  press.  Under  these 
conditions,  the  scope  of  the  topics  covered,  of  which  the  following 
list  from  the  New  York  Times'  financial  page  can  be  taken  as 
typical  of  the  better  papers,  and  the  soundness  of  the  material 
presented  renders  the  accomplishment  all  the  more  praiseworthy. 

Stock  Market  Review 

Stock  Prices  and  Traneactions,  N.  Y.  Stock  Exchange 

Stock  Prices  and  Transactions,  Consolidated  Exchange 

Stock  Prices  and  Transactions,  N.  Y.  Curb  Market 

Bond  Prices  and  Transactions,  N.  Y.  Stock  Exchange 

Average  Prices,  Rails,  Industrials,  and  Bonds 

Short  Term  Notes,  Prices  and  Yields 

Bid  and  Asked  Quotations,  Inactive  Issues 

Equipment  Bonds,  Maturities  and  Yields 

Munition,  Tobacco,  and  Standard  Oil  Stock  Quotations 

Out-of-Town  Exchange  Transactions 

Govenment  Bonds,  Bid  and  Ask  Prices 

New  York  City  Bonds,  Bid  and  Ask  Prices 

Dividends  Declared 

Earnings  Statements 

Financial  Notes 

Metal  Market  Report 

Topics  in  Wall  Street 

Money  and  Exchange 

London  Market  Review 

Paris  Market  Review 

U.  S.  Treasury  Statement 

Commodity  Prices  and  Reviews 


The   D  i  s  t  r  i  b  ii  t  i  o  u    of   M  a  r  k  e  t    News     21 

This  financial  "page"  c()\crs  two  pages  and  part  of  a  third, 
and  its  Hst  of  topics  makes  up  quite  a  formidable  array. 

Much  of  the  information  has  been  drawn  from  the  ticker 
and  news  slips  service.  Dow-Jones  and  Company,  and  the 
New  York  News  Bureau  in  the  completeness  and  accuracy  with 
which  they  cover  events  serve  the  financial  editors  of  newspapers 
much  the  same  as  an  Associated  Press. 

IV.  Weekly  and  Monthly  Periodicals 

Periodicals  which  appear  less  frequently  than  the  daily  papers 
lack  timeliness,  it  is  true,  yet  they  have  a  field  of  distinct  use- 
fulness, notwithstanding.  These  periodicals  range  from  general 
publications  which  treat  finance  incidentally  to  magazines 
definitely  specialized  upon  this  one  subject. 

Iron  Age,  The  Drygoods  Economist,  The  Oil,  Paint  and  Drug 
Reporter,  Bradstreef s  and  Duns  Review  may  be  cited  as  excellent 
magazines  of  more  general  interest;  and  the  Commercial  and 
Financial  Chronicle,  The  Magazine  of  Wall  Street,  The  Annalist, 
The  Financial  World,  Forbes'  Magazine  and  Commerce  and  Finance 
as  periodicals  treating  finance  in  a  more  specialized  way. 

V.  Card  Systems 

The  card  systems  are  a  means  of  classifying  data  so  it  can 
be  gotten  at  easily.  The  company  which  prepares  these  cards, 
the  Standard  Statistics  Company,  New  York  City,  maintains 
well-equipped  statistical  laboratories,  and  the  considerable  mass 
of  data  which  they  draw  from  the  sources  above  mentioned  is 
sorted  according  to  particular  corporations,  as  U.  S.  Steel, 
Atchison,  American  Beet  Sugar,  etc. 

The  information  which  pertains  to  a  given  corporation  is 
then  edited  and  printed  upon  a  card  size  five  by  eight.  These 
cards  are  filed  alphabetically  in  a  small  case,  which  renders 
them  easily  accessible.  The  information  is  kept  up-to-date  by 
the  daily  preparation  of  new  pages,  w^hich  are  printed  as  changes 
worthy  of  note  occur. 


22  Market    Information 

VI.  Statistical  Manuals 

These  Manuals  include  information  less  timely  but  prepared 
with  a  comprehensiveness  and  thoroughness  which  renders  it 
most  useful  for  purposes  of  reference. 

The  task  of  preparing  one  of  these  bulky  volumes  —  the 
securing  of  data  from  thousands  of  corporations,  classifying  it, 
and  rating  the  various  securities  —  constitutes  a  formidable 
undertaking.  The  speed  and  accuracy  with  which  the  work  is 
done  and  the  sound  judgment  shown  in  the  ratings,  are  highly 
commendable. 

VII.  Market  Letters 

Banks,  bond  houses,  brokers,  market  observers,  and  "tip- 
sters" in  corisiderable  number  issue  comments  upon  the  market. 
These  comments,  usually  referred  to  as  market  letters,  will  be 
considered  more  in  detail  later. 

These  are  the  chief  channels  through  which  market  infor- 
mation is  distributed.  What  is  its  value?  How  can  it  be  used 
with  profit?  These  are  worth-while  questions  to  the  man  whom 
an  over-abundance  of  data  and  contrary  advices  are  likely  to 
confuse  and  who  cares  little  for  it  after  all  save  to  secure  profits 
in  the  market.  We  shall  now  turn  to  the  consideration  of  these 
questions. 


CHAPTER  IV 
"WHO  SAYS  IT  AND  WHY?" 

What  Readers  May  Rightfully  Expect 

The  reason  why  people  attempt  to  secure  market  news, 
presumably,  lies  in  their  desire  for  sound  data  concerning  what 
has  occurred,  plus  instruction  in  the  relation  of  cause  and  effect, 
to  the  end  that  they  can  better  forecast  the  future.  This  means 
more  profit  to  them. 

The  circulation  of  misleading  information  does  not  meet 
these  tests ;  hence  every  serious  student  of  the  market  will  be  in 
accord  with  what  Henry  Clews,  the  well-known  banker,  seeks  to 
accomplish  when,  in  speaking  of  those  who  make  it  a  part  of 
their  business  to  circulate  such  misleading  information,  says: 

"Principal  among  these  caterers  are  the  financial  news  agen- 
cies and  the  morning  Wall  Street  news  sheet,  both  specially 
devoted  to  the  speculative  interests  that  centre  at  the  Stock 
Exchange.  The  object  of  these  agencies  is  a  useful  one;  but  the 
public  have  a  right  to  expect  that  when  they  subscribe  for  in- 
formation upon  which  immense  transactions  may  be  undertaken, 
the  utmost  caution,  scrutiny  and  fidelity  should  be  exercised  in 
the  procurement  and  publication  of  the  news.  Anything  that 
falls  short  of  this  is  something  worse  than  bad  service  and  bad 
faith  with  subscribers ;  it  is  dishonest .  and  mischievous.  And 
^'■et  it  cannot  be  denied  that  much  of  the  so-called  news  that 
reaches  the  public  through  these  instrumentalities  must  come 
under  this  condemnation. 

"The  'points,'  the  'puffs,'  the  alarms  and  the  canards,  put 
out  expressly  to  deceive  and  mislead,  find  a  wide  circulation 
through  these  mediums,  with  an  ease  which  admits  of  no  possible 
justification.  How  far  these  lapses  are  due  to  the  haste  insepa- 
rable from  the  compilation  of  news  of  such  a  character,  how  far 


24  Market    Information 

to  a  lack  of  proper  sifting  and  caution,  and  how  far  to  less  cul- 
pable reasons,  I  do  not  pretend  to  decide;  but  this  will  be  ad- 
mitted by  every  observer,  that  the  circulation  of  pseudo  news 
is  the  frequent  cause  of  incalculable  losses. 

"Nor  is  it  alone  in  the  matter  of  circulating  false  informa- 
tion that  these  news  venders  are  at  fault.  The  habit  of  retailing 
'points'  in  the  interest  of  cliques,  the  volunteering  of  advice  as 
to  what  people  should  buy  and  what  they  should  sell,  the  strong 
speculative  bias  that  runs  through  their  editorial  opinions, 
appear  to  most  people  a  revolting  abuse  of  the  true  functions  of 
journalism." 

The  Financial  Writer's  Difficulty 

These  are  statements  made  by  Mr.  Clews.  They  may  or 
may  not  be  representative.  There  are  others  who  go  further 
than  Mr.  Clews  and  charge  that  newspapers  are  "owned"  by 
Wall  Street  interests;  that  manipulators  secure  their  write-ups 
by  giving  financial  writers  either  calls  upon  the  stock  they  are 
trying  to  boom  or  more  direct  bribes;  while  others,  still  more 
pronounced  in  their  views,  say  that  newspapers  and  the  finan- 
cial press  in  general  are  nothing  but  parts  of  a  "skin  game". 

It  is  well  to  remain  conservative  about  this,  since  biased 
views  are  not  profitable,  whichever  side  they  are  on.  The 
problem  of  news  gathering  accordingly  may  come  in  for  exami- 
nation. Consider  the  situation  of  the  reporter,  trying  to  gather 
news. 

The  never-ending  gossip  of  chair  warmers  is  easy  to  get,  but 
valueless;  it  represents  shallow  opinion  with  no  money  behind 
it.  Yet  opinions  which  really  count  are  never  easy  to  obtain 
since  they  represent  to  their  fortunate  possessor  assets  with 
which  he  can  profit.  Due  to  the  fact  that  men  of  means  and 
superior  foresight  can,  by  keeping  silent,  shift  their  holdings  so 
that  losses  otherwise  theirs  fall  upon  the  unwary  and  thereby 
free  their  capital  for  the  bargain  prices  which  later  appear,  they 
are  not  anxious  to  take  the  public  into  their  confidence. 

"Do  it  first  and  tell  about  it  afterwards,"  was  Commodore 


"Who   Says    If   and    Why?''  25 

\'anderbiU's  reiil\-  to  a  friend  who  inquired  of  liini  w  lial  was  the 
secret  of  success  in  business.  "Never  say  'cat'  until  >()u  have 
him  in  the  bag,"  was  Jay  Gould's  motto.  "He  never  lets  the 
left  hand  know  what  the  right  hand  does,"  explained  Mr.  Gould's 
partner,  Morosini.  The  late  J.  Pierpont  Morgan  practically 
never  was  interviewed  until  in  1901  when,  w^ith  reams  of  se- 
curities to  market,  he  saw  the  light,  and  arranged  that  a  repre- 
sentative of  the  Associated  Press  might  see  him  every  day,  if 
necessary.  Edward  H.  Harriman  saw  no  reporters  at  all  — 
unless  he  wanted  to  make  use  of  them.  \'anderlip,  Schwab, 
George  Gould,  J.  P.  Morgan,  Jacob  Schiff,  John  D.  Rockefeller, 
Jr.,  and  Judge  Gary,  to  mention  a  few  present  day  leaders,  are 
approachable,  but  "busy"  and  likely  to  have  "nothing  to  say". 

"Influence" 

What  is  the  journalist  to  do?  He  recognizes  that  opinions 
worth  while  must  be  fished  for  through  hooks  and  crooks  which 
skilled  journalists  use  everywhere.  Woodlock  in  writing  of 
Reilly  expressed  the  usual  methods  pretty  clearly  w^hen  he  said: 
"Gradually  he  built  up  a  circle  of  friends  in  the  great  'news 
centers'  of  the  Street  —  men  who  in  some  cases  would  talk  to 
Reilly  and  to  no  one  else,  and  who  sent  for  him  when  they  had 
anything  to  say.  They  liked  and  trusted  the  modest,  rather 
dififident,  and  quiet  spoken  man  who  was  so  careful  in  what  he 
said  and  wrote  and  who  w^as  evidently  so  trustable." 

The  journalist  who  has  proved  himself  "satisfactory"  can 
secure  the  information  his  paper  w^ants  —  when  it  is  information 
the  powers  that  be  w'ant  loosed  to  the  public. 

While  sponsors  of  some  wild-cat  flotation  on  the  Curb  are 
ready  with  bribes  in  the  form  of  stocks  and  money,  but  prefer- 
ably stocks,  neither  the  big  men  of  the  Street  or  its  leading 
journalists  stoop  to  such  practices.  With  them  it  is  simply  a 
matter  of  "influence".  The  newspaper  men  are  cultivated  by 
the  financiers  as  they  are  by  the  political  leaders;  they  are 
recognized  as  persons  of  some  power  in  relation  to  plans  under 
way,  and  they  are  desired  as  friends,  not  enemies. 


26  M  a  r  k  e  t   I  nf  o  r  m  ati  o  n 

Why  Papers  are  Bullish 

What  is  the  nature  of  the  information  which  the  journaHst 
secures  from  the  more  important  men  of  the  Street?  Of  course 
there  are  accounts  of  new  flotations,  election  of  directors,  divi- 
dends, receiverships,  etc.,  which  are  merely  matters  of  fact;  but 
when  it  comes  to  interpretation,  to  view-point,  interview  after 
interview  year  after  year  usually  states  when  boiled  down 
nothing  more  than  what  the  late  J.  Pierpont  Morgan  once  said 
years  ago: 

"One  thing  my  father  said  I  shall  always  remember: 

"  'Don't  discount  the  future  of  America. 

"  'There  may  be  times  when  things  are  dark  and  cloudy; 
when  uncertainty  will  cause  some  to  distrust  and  others  to  think 
there  is  too  much  development,  too  much  production,  too  much 
building  of  railroads,  and  too  much  development  in  other  enter- 
prises. In  such  times,  and  at  all  times,  remember  that  the 
great  growth  of  this  vast  country  will  take  care  of  all.' 

"Said  he,  'Any  man  who  is  bear  on  the  future  on  this  country 
will  go  broke'." 

The  financiers  of  Wall  Street,  in  general,  talk  when  they 
have  something  encouraging  to  say;  otherwise  they  remain  silent. 
Why  is  this? 

Financiers  always  have  a  supply  of  securities  on  hand. 

Securities  are  made  to  sell. 

What  sales  manager  would  dry  up  his  own  market?  What 
salesman  talks  down  his  own  wares? 

What  the  Public  Wants 

There  are  other  reasons,  however,  for  the  newspaper's  bull- 
ishness. 

The  vast  majority  of  the  public  who  appear  in  Wall  Street 
are  by  nature  optimistic,  one  could  say  almost  pathetically 
hopeful.  Human  nature  prefers  the  bright  side  of  things  and 
tends  to  ignore  or  underrate  the  shadows,  thus  creating  the 
somewhat  lop-sided  view  of  things  which  the  average  man  holds. 
He  has  been  accustomed  as  a  business  man  to  buy  at  a  certain 


"Who   Says    It   and    Why?''  27 

price  and  sell  at  an  advance,  never  to  sell  at  the  advance  first 
and  buy  later  at  a  lower  price.  Short  selling  is  to  him  a  closed 
book. 

His  first  deals  were,  of  course,  on  the  long  side  and  his  first 
profits  due  to  an  advance. 

His  attitude  towards  securities  is  that  of  ownership,  which 
sense  of  ownership  naturally  causes  him  to  rejoice  over  the  cor- 
poration's good  tidings  and  sorrow  over  its  misfortunes.  Prac- 
tically as  partners  to  him  are  those  who  predict  prosperity  for 
this  company,  and  enemies,  from  whom  his  company  needs 
protection,  are  those  who  forecast  its  decline,  possibly  its  bank- 
ruptcy. 

Consequently,  the  public  as  newspaper  readers  warm  toward 
the  paper  which  presents  matters  in  the  hopeful,  bullish  way 
they  themselves  believe;  and  they  resent,  and  will  not  tolerate 
with  patience,  papers  which  feature  bearish  news,  with  sugges- 
tions of  calamity.  The  newspapers  see  to  it  that  their  readers 
get  what  they  want. 

Why  are  newspapers  predominantly  bullish?  Consider 
their  pages  from  the  standpoint  of  supply  and  demand.  Supply: 
Bull  interviews  and  news  items  in  abundance,  almost  all  the 
time,  bear  ammunition  much  less  easily  secured.  Demand: 
Bull  articles  and  predictions  read  with  eager  pleasure,  bear 
predictions  resented  and  bear  news  left  unread. 

The  Broker 

Market  letters  sent  out  by  brokers  have  been  mentioned  as 
a  channel  of  news.  These  letters  plus  the  personal  contact  with 
customers  and  newspaper  reporters  which  the  broker  enjoys, 
render  brokers  an  important  influence  in  shaping  market  opinion 
and  in  directing  actual  sales  and  purchases. 

The  broker  essentially  is  only  the  agent  w^ho  executes  his 
customers'  orders.  He  is  not  responsible  for  the  success  or  non- 
success  of  the  trades  which  his  customers  make,  and  he  usually 
has  no  special  means  of  determining  the  market  trend,  or  the 
value  of  a  particular  security,  that  are  not  also  available  to  his 
clients. 


28  M  a  r  k  e  t    I  n  f  0  r  m  a  t  i  0  n 

But  he  has  the  advantage  of  being  there  all  the  time.  The 
information  which  his  clients  have  to  go  out  of  their  way  to 
find,  comes  to  his  desk  as  a  matter  of  routine.  He  has  seen  most 
kinds  of  information  before,  many  times,  and  can  estimate  with 
some  degree  of  accurac}^  what  its  effect  will  be  on  the  market. 
But  he  is  not  omniscient,  and  does  not,  or  should  not  pretend 
to  be.  By  reason  of  personal  contact  with  the  management  or 
large  stockholders  of  one  or  two  companies  he  may  have  real 
"inside"  information  on  these,  but  this  information  is  his  as  a 
confidential  agent  and  cannot  be  used  for  the  benefit  of  other 
clients.  Therefore  it  is  well  to  remember  that  the  broker's 
opinion  on  most  stocks,  and  on  the  general  market,  is  no  better 
than  that  of  similarly  experienced  persons  who  secure  all  the 
information  available. 

As  to  asking  a  broker's  opinion,  do  so  by  all  means  if  you 
wish,  but  if  he  is  the  right  kind  of  a  broker  he  will  place  all  the 
facts  he  has  before  you,  and  tell  you  what  he  has  heard,  and 
steer  as  far  away  from  giving  a  definite  opinion  as  possible.  The 
bigger  the  customer  the  less  the  broker  will  be  inclined  to  give 
advice. 

And  the  reason  for  this  is  fairly  clear.  The  broker  does  not 
know,  unless  you  tell  him,  what  you  know  about  a  company, 
and  in  eight  cases  out  of  ten  he  knows  so  little  except  from  hear- 
say, that  he  may  safely  assume  that  you  know  more.  It  is  not 
safe  to  assume  that  a  man  about  to  take  on  a  contract  involving 
from  $1,000  to  perhaps  $1,000,000  does  not  know  what  he  is 
doing. 

Brokers'  Market  Letters 

Brokers'  letters  are  many  and  varied  in  character.  Some 
are  always  bullish;  some  predict  only  tomorrow's  market;  some 
next  week's;  some  next  year's.  As  a  rule  letters  confined  to 
the  immediate  future  are  mere  business  getters.  As  there  are 
only  two  ways  for  the  market  to  go  these  business  getters  have 
an  even  chance  of  being  right.  Those  which  try  to  foresee  the 
broad  movements  in  the  market  are  not  in  this  class.     They  do 


"Who   Says    It   and    Why?"  29 

not  try  to  drive  customers  in  today  and  out  tomorrow,  but 
assemble,  generally  through  an  aljle  analyst,  the  facts  and 
probable  happenings,  and  deduce  conclusions  as  to  the  general 
trend  of  security  prices  over  a  long  period.  Such  letters  cannot 
always  be  right,  but  they  are  usually  much  sounder  than  the 
first  class  referred  tf). 

The  broker  wants  his  customers  to  be  successful.  Each 
gain  means  new  trades,  perhaps  on  a  larger  scale,  and  he  would 
ask  nothing  better  than  to  ha\'e  all  his  odd  lot  traders  prosper 
to  the  point  where  they  could  swing  a  thousand  shares.  There- 
fore he  will  give  his  clients  who  ask  for  it  the  best  advice  he  has. 
It  may  be  good,  but  it  is  not  to  be  considered  infallible. 

The  Tipster 

Not  a  little  of  the  information  which  passes  around  in  Wall 
Street  consists  of  suggestions  to  buy  or  sell  something,  the 
reasons  for  such  advice  not  being  entirely  clear  as  a  rule.  These 
more  or  less  illogical  or  "underground"  suggestions  are  termed 
tips,  and  persons  who,  in  a  relatively  sensational  or  insidious 
way,  impart  them  with  the  expectation  of  themselves  profiting 
thereby  are  termed  tipsters. 

The  tipster  operates  in  various  ways,  sometimes  seeking  out 
his  prospects  personally  and  at  other  times  writing  cheap  and 
sensational  counterfeit  of  the  market  letters  issued  by  reputable 
financial  houses.  With  respect  to  the  sources  of  his  informa- 
tion, he  possibly  claims  to  be  the  telegraph  operator,  bookkeeper, 
clerk,  or  confidential  man  to  some  noted  operator  whose  plans 
he  thus  knows  in  advance;  or,  again,  the  precious  news  is  dis- 
covered by  accident ;  or,  more  commonly,  he  poses  as  a  man 
who  moves  easily  among  the  big  men  of  the  Street,  to  whom 
inside  information  naturally  comes.  However  that  may  be,  he 
claims  to  have  "real  inside  stuff"  with  which  he  will  part  for  a 
consideration. 

The  more  lurid  of  the  tipster  sheets  with  which  Wall  Street 
used  to  be  over-supplied  have  disappeared,  due  to  the  fact  that 
the  public  has  become  better  informed.  Yet  sheets  still 
surprisingly   bad   are   occasionally   placed   by   even    well-known 


30  Market    I  nf  o  rm  ati  o  7i 

brokerage  firms  upon  the  tables  in  their  customers'  rooms.  The 
tipster  whose  sheet  often  is  thus  displayed,  upon  one  occasion 
explained  his  principles,  which  serves  as  a  commentary  both 
upon  himself  and  upon  the  houses  who  offer  his  tips  to  their 
customers  for  guidance : 

"Men  crowd  into  Wall  Street  to  gamble,"  he  announced 
with  characteristic  brazenness,  "and  you  can  depend  upon  me  to 
see  they  get  their  fill.  I  load  them  up,  jolly  them  along,  and 
when  the  crash  comes  and  they  lose,  I  pass  the  buck  by  laying 
the  blame  upon  the  bears. 

"Of  course,  I  don't  know  what  the  market  is  going  to  do, 
any  more  than  the  public  does.  But  I  am  always  positive, 
strongly  bullish,  and  give  them  the  best  run  I  can  for  their 
money." 

It  would  be  a  pleasure  to  announce  that  this  cheerful  artificer 
was  now  without  a  following,  but  unfortunately,  his  sheet, 
mimeographed  in  deep  black  but  otherwise  most  rosy,  is  still 
in  evidence. 

Newspapers'  Retail  Tips 

Financial  journalists  connected  with  papers  of  the  better 
type  would  deny  to  a  man  they  were  tipsters.  They  are  not,  in 
the  usual  sense  of  the  term,  since  they  have  no  direct  financial 
interest  in.  what  the  reader  buys  and  sells.  Nevertheless,  their 
writings  very  often  throw  a  twist  into  the  reader's  mind  whose 
effect  is  not  unlike  that  of  the  tip. 

The  journalist  seats  himself  to  write  the  day's  news.  Steel 
has  declared  its  regular  preferred  dividend,  Brooklyn  Rapid 
Transit  is  in  the  market  for  funds,  the  Union  Pacific  statement 
is  out.  Congress  has  under  discussion  a  new  tax  measure,  etc. 

T,hese  are  facts,  but  what  staleness  to  the  writer!  Can  he,  by 
reciting  these,  crowd  his  columns  with  the  "pep"  demanded  by 
his  chief,  the  financial  editor? 

With  visions  of  getting  his  salary  raised  from  $40  to  $50  per 
week  he  writes:  "Anaconda  was  sold  freely  by  the  shorts,  as  was 
Utah,  which  declined  a  full  two  points.  The  attack  likely  will 
continue  since  the  big  interests  stand  aloof  and  the  bear  pool 


''Who   Says    It   and    Why?''  31 

said  to  be  formed  in  coppers  comprises  the  most  powerful  opera- 
tors in  the  Street.  The  rest  of  the  market  withstood  the  selHng 
of  the  coppers  well,  in  fact  Steel  after  all  the  pounding  of  the 
copper  crowd  closed  one-eighth  higher  than  yesterday.  When 
the  shorts  in  the  coppers  try  to  cover,  a  buoyant  market  can  be 
expected.  Large  operators  openly  predicted  higher  prices  before 
the  end  of  the  week." 

The  reader  that  night  looks  over  the  day's  quotations  and 
then  turns  to  the  news  items  and  editorials;  he  is  ready  to  do 
a  little  market  planning.  "ANACONDA  ATTACKED  BY 
SHORTS,  WILL  GO  LOW^ER!" 

This  is  his  favorite  stock  and  he  is  loaded  with  it  on  a  ten 
point  margin.  "Anaconda  off  a  point  and  three-quarters  — 
will  go  loivery  This  ominous  thought  haunts  him  through  the 
night.  The  next  morning  he  orders  the  broker  to  sell  his  Ana- 
conda at  the  market,  and  switches  into  Steel.  That  very  day 
Anaconda  goes  up  two  points  and  Steel  simply  marks  time. 
His  faith  somewhat  shaken  in  the  all  sufficiency  of  one  paper, 
he  brings  home  a  second  journal.  He  learns  from  Oracle  No.  2 
that:  "Under  vigorous  buying  the  big  interests  asserted  their 
faith  in  the  copper  situation  by  bidding  up  prices.  Practically 
every  copper  stock  scored  a  good  advance.  Under  cover  of  this 
upturn  in  the  coppers,  which  is  well  founded,  the  steels  were 
fed  out  to  all  takers.  The  coming  statement  of  U.  S.  Steel  and 
Republic  likely  wmII  leave  much  to  be  desired,  and  the  interests 
were  thinking  of  these  things  when  they  sold  today." 

When  in  reading  his  paper  one  comes  across  statements 
similar  to  the  foregoing,  he  needs  to  be  on  his  guard,  with  ques- 
tions: Has  the  writer  really  hunted  up  every  buyer  and  seller, 
and  found  out  how  much  and  why  he  bought  and  sold?  Are 
the  big  interests  and  operators,  as  it  appears  to  be  implied,  in 
the  habit  of  consulting  this  newspaper  oracle  every  move  they 
make  .•* 

The  newspaper's  financial  page  as  a  day-to-day  record  of 
what  transpires  serves  an  excellent  purpose.  But  should  its 
writers  essay  the  role  of  prophet  they  may  in  reality  play  only 
the  tipster's  part. 


32  M  a  r  k  e  t    I  u  f  0  r  m  a  t  i  o  n 

Information  Which  Yields  Profit 

Market  information,  as  it  now  has  been  surveyed,  contains 
in  some  instances  most  deceptive  elements.  Yet  even  so,  this 
should  not  obscure  the  more  important  fact,  that  dependable 
information  in  an  abundance  which  commonly  remains  unappre- 
ciated, also  is  available. 

There  are  Wall  Street  leaders  keenly  appreciative  of  their 
position  in  finance,  whose  utterances  are  as  sound  as  trained 
foresight  can  make  them,  and  who  will  not  stoop  to  deceive. 

There  are  newspapers,  magazines,  and  statistical  manuals 
whose  earnest  search  for  facts,  and  facts  only,  remains  un- 
questioned. 

There  are  writers  of  market  letters  whose  conscientious  study, 
expert  knowledge,  and  sincerity  of  purpose  render  their  advice 
almost  invaluable  to  the  less  experienced. 

There  are  brokers  whose  service  is  prompt,  accurate,  honest, 
and,  judged  by  all  tests  which  customers  reasonably  can  propose, 
efficient. 

These  are  at  present  all  too  few  but  their  number  will  increase 
if  subscribers  patronize  them  and  ignore  the  other  kind.  Wall 
Street  supplies  what  the    majority  calls  for. 


CHAPTER  V 
CHARTS 

Needed,  a  Bird's-Eye  View 

What  has  been  said  in  ihe  preceding  chapter  incHcates  that, 
since  items  of  information  both  correct  and  deceptive  issue  from 
Wall  Street's  news  hopper,  discrimination  is  essential.  But  dis- 
crimination requires  time,  and  hence  the  ver\-  fullness  of  the  mar- 
ket information  which  one  may  have  leaves  him  very  probably 
somewhat  appalled.  He  cannot  keep  abreast  of  it,  somehow, 
and  has  the  uneasy  feeling  that  after  all  he  is  making  of  himself 
a  pack  horse,  instead  of  an  alert,  well-informed  man. 

The  few  prices  which  at  first  are  all  that  particularly  interests 
the  average  person  can  easily  be  remembered.  Then  his  interest 
in  other  issues  develops  and  he  also  begins  to  see  that  other 
data,  such  as  money  rates,  unfilled  orders,  the  action  of  the  mar- 
ket as  a  whole,  etc.,  needs  to  be  included  in  his  list  f)f  worth-while 
information.  Finally,  if  he  pursues  the  matter  systematically, 
he  comes  to  the  same  point  we  have  reached  in  this  Text :  How 
can  I  get  into  most  usable  form  nn-  market  information.'^ 

The  Use  of  Graphics 

What  a  person  really  seeks  when  he  raises  the  foregoing  ques- 
tion is  a  bird's-eye  view  of  the  market,  its  forces  and  the  action 
of  individual  stocks. 

This  bird's-eye  view  is  secured  through  the  use  of  graphics. 

There  has  been  a  great  deal  said  both  pro  and  con  on  graphs 
or  charts,  which  indicates  that  the  majority  of  those  interested 
in  the  market  feel  the  need  of  some  such  advice.  Notwith- 
standing the  considerable  discussion,  however,  misapprehension 
exists  concerning  the  actual  use  —  and  abuse — ^  of  charts.  In 
this  and  later  Texts  the  attempt  is  made  to  clear  away  this 


34  Market   In  for  771  alio  71 

misapprehension  and  show  clearly  how  charts  can  serve  one  in 
formulating  his  market  opinions. 

The  immediate  problem  shapes  itself  in  this  way: 

The  forces  which  make  prices  comprise  numerous  items; 

Information  bearing  upon  these  items  is  available  in  consid- 
erable detail; 

This  information  can  be  grouped  roughly  into :  (a)  fundamen- 
tal statistics,  (b)  stock  market  averages,  and  (c)  data  on  indi- 
vidual stocks; 

Charts  assist  in  bringing  much  of  this  information  to  the  mind 
with  speed  and  accuracy. 

Fundamentals  Charted 

Fundamentals  comprise  items  such  as  money  rates,  bank 
clearings,  commodity  prices,  business  failures,  etc.  The  sources 
of  these  data  and  the  channels  of  distribution  have  been  described. 

The  line  chart  is  the  usual  means  of  presenting  this  informa- 
tion. Cross  section  paper  is  used.  At  the  left,  the  scale  decided 
upon  is  shown  —  so  many  shares,  dollars,  tons,  etc.,  to  the  square 
vertically.  Dates  are  shown  from  left  to  right  at  the  top  —  so 
many  days,  weeks,  months,  etc.,  to  each  square  horizontally. 

Dots  are  placed  upon  the  chart  at  the  proper  distance  up 
from  the  bottom  according  to  amounts  and  at  the  same  time  the 
proper  distance  out  from  the  left  according  to  date.  J'hese  dots 
are  then  connected  with  a  line,  which  gives  us  a  line  chart. 

These  line  charts  have  been  used  so  frequently  in  the  Texts 
that  it  does  not  appear  necessary  to  reproduce  one  here  as  an 
illustration. 

Stock- Market  Averages  Charted 

The  action  of  the  market  as  a  whole  concerns  persons  inter- 
ested in  securities  directly  and  others  who  find  the  record  of 
security  prices  a  good  barometer  for  their  own  business.  Yet 
information  upon  this  point  is  rather  difficult  to  draw  at  first 
hand  from  the  tables  of  daily  transactions,  in  which  over  a  hun- 
dred issues  are  quoted.     The  stock-market   averages,  however, 


CHARTS   OF   VALUE 

Daily  "Average"  Movement  High,  Low,  and  Closing 


• 


C  hart  s  35 

enable  one  rather  easily  to  get  a  grip  upon  what  the  market  as 
a  whole  is  doing. 

The  averages  compiled  daily  by  the  New  York  Times  are 
excellent.  They  comprise  three  sets  of  data:  (1)  an  average  of 
twenty-five  rails;  (2)  an  average  of  twenty-five  industrials;  and 
(3)  an  average  of  fifty  stocks,  which  is  made  of  the  preceding  two. 

The  chief  deficiency  of  the  Times  averages  is  that  they  run 
back  only  to  January,  1911.  Since  it  is  at  times  most  desirable 
to  deal  with  periods  prior  to  that  date,  the  Dow-Jones  averages 
are  cited.     These  have  been  compiled  since  1897. 

The  use  of  these  stock  averages  in  determining  the  trend  of 
the  market,  and  hence  the  right  time  to  buy  or  sell,  is  a  study 
in  itself.  When  correctly  interpreted,  these  averages  serve  a 
useful  purpose. 

Charts  of  the  "Average"  Movements 

In  order  that  clients  who  wish  to,  may  fully  appreciate  and 
follow  the  technical  action  of  the  market,  not,  be  it  understood, 
from  the  standpoint  of  day  to  day  trading,  but  from  the  stand- 
point of  having  a  picture  before  them  of  just  what  is  going  on 
in  the  market,  we  give  on  an  insert  herewith,  charts  of  the  daily 
"average"  movement  of  the  market. 

These  charts  cover  a  period  of  some  three  and  a  half  months. 
They  should  be  sufihcient  to  give  an  idea  of  what  charting  such 
pictures  of  the  market  will  show.  As  can  be  seen,  one  chart  is 
the  "average"  of  the  rails,, the  other  the  industrials.  Averages 
used  are  those  of  the  New  York  Times  —  25  rails  and  25  indus- 
trials. The  vertical  lines  picture  the  daily  high  and  low  of  this 
"average"  movement,  the  horizontal  line  across  the  vertical  line 
denotes  the  closing  prices.  For  example,  the  last  day  charted 
is  Tuesday,  December  19th,  1922.  On  that  day  the  high  of  the 
25  rails  was  60.68  —  low  59.09  —  closing  60.53.  On  the  25 
industrials,  the  high  was  110.30  —  low  108.56 — ^  closing  109.76. 
A  valuable  addition  to  such  a  chart  would  be  a  scale  of  daily 
volumes,  for  the  entire  market,  placed  at  the  bottom  of  the  chart, 
through  the  use  of  vertical  lines. 


36 


Market   Information 


The  use  of  such  charts  must  be  broad,  not  narrow.  In  them- 
selves alone  they  are  far  from  shoiving  how  to  maize  money  in  the 
martzet.  Yet,  a  picture  of  the  market  is  certainly  valuable.  It 
seems  to  us  that  the  greatest  value  that  can  be  obtained  from  the 
use  of  charts  is  indicated  by  the  action  of  these  two  charts  in 
October.  In  that  month,  the  average  of  industrials  went  mate- 
rially higher  than  in  September.  The  average  of  the  rails  refused 
to  follow,  indicating  clearly  quite  a  difference  in  the  character 
of  the  buying,  as  previously,  since  the  summer  of  1921,  rails, 
although  more  moderate  in  movement,  had  either  followed  or 
led  the  industrials. 


Individual  Stocks  Charted 

There  are  two  kinds  of  charts  whose  make-up  should  be 
described :  line  and  block.  Since  each  has  its  adherents  who 
claim  it  superior  and  on  account  of  the  fact  that  choice  should 
be  made  intelligently,  it  seems  best  to  take  some  actual  quota- 
tions and  show  how^  they  are  charted.  This  has  been  done  in  the 
accompanying  table  and  figures.  These  two  charts  present 
identical  information  yet  they  differ  radically  in  appearance. 


A  shows  how  these  data  appears  on  a  one-point 
line  chart,  that  is,  a  chart  which  shows  fluctuations  of 
one  point  or  more.  Opening  at  97,  the  stock  advanced 
to  98,  tlien  reacted  a  half  point.  No  account  would 
be  taken  of  this  reaction  in  charting,  since  it  did  not 
extend  a  full  point.  The  line  runs  straight  to  lOOX. 
then,  since  a  move  in  the  reverse  direction  of  over  a 
point  occurs,  a  jog  to  the  right  is  made  to  avoid  retrac- 
ing the  line  and  the  move  to  98^4^  is  shown.  The  tick 
may  be  employed  to  represent  the  closing  price,  and 
the  cross  the  ;opening  price.  Two-point  line  charts, 
five-point  line  charts,  etc.,  can  be  made  in  the  same 
general  way. 

B  presents  the  same  data.  The  bottom  of  the 
oblong  represents  the  low  price  of  the  day,  the  top  the 
highest  price,  and  the  inside  mark   the  opening    price. 

This  chart  does  not  show  the   fluctuations  so   fully  as 

/\  3  does  A,  but  it  is  simpler  and   easier   to   make.     Inci- 

dentally, it  can  be  prepared  from  the  data  shown  in 
the  average  daily  paper's  financial  page  (a  stock's  opening,  high  and  low  prices),  while  for  A 
a  record  of  each  transaction  is  required. 


1 

p 

— 

^_^ 



> 

J 

— 

Charts  37 

TRANSACTIONS   IN  X  Y  Z  COMMON 

Sept.  17  Sept.  18 

100—  97  200—  99K 

500—  97^  100—10034 

400—  98  200—101 

100—  97>^  200—100 

300—  98M  300—102 

400—  99  400— 1023>g 

200— lOOJi  100— 101^ 

100—  98M  600— 103K 

The  transactions  which  occurred  on  the  Exchange  are  shown 
for  two  days. 

Choice  of  Charts 

Which  of  these  two  charts  —  and  additional  modifications 
of  them,  for  that  matter  —  are  best? 

The  chart  user  when  he  wants  to  know  which  is  best  often- 
times is  merely  on  the  lookout  for  a  mechanical  method  of  beat- 
ing the  market.  Wall  Street,  in  fact,  is  full  of  chart  fiends  who 
talk  learnedly,  and  with  much  cocksureness,  of  "double  tops" 
and  "making  bottoms"  in  a  purely  "paper"  way  without  regard 
to  the  real  conditions  which  prevail. 

Charts  are  no  substitute  for  judgment. 

The  person  who  finds  himself  examining  his  charts  in  the 
covert  attempt  to  discover  a  "system"  which  he  can  follow,  has 
the  cart  before  the  horse;  and  he  should  right  about  face  before 
doing  anything  farther  in  the  market.  The  chart's  true  purpose 
is  to  assist,  not  to  supplant  judgment. 

Which  chart,  then,  is  best?  That  which  supplies  the  person 
who  keeps  it  the  most  accurate  and  quickly  grasped  picture  of  what 
the  whole  market  or  certain  stocks  have  done.  In  analyzing  this 
action  of  the  market  and  of  a  particular  stock,  the  importance  of 
three  elements  is  recognized;  price,  volume  of  transactions,  and 
time;  and  the  block  chart,  since  it  sets  these  facts  forth  most 
adequately,  appears  upon  the  whole  superior.  Much  depends, 
of  course,  upon  which  plan  of  dealing  in  securities  the  subscriber 
decides  to  follow. 

In  securing  the  numerous  benefits  of  the  graphic  method  and 
avoiding  at  the  same  time  the  dangers  which  lie  in  "chart  read- 


447458 


38  M  ar  k  e  t    I  nf  ormation 

ing,"  those  who  keep  charts  should  bear  in  mind  that  persons  in 
the  market  are  faced  with  the  problem  of  how  best  to  get  their 
information  into  shape;  and  that  charts  that  picture  the  past 
vividly  and  accurately  provide  the  judgment  with  an  efficient  ally. 

Another  Type  of  Chart 

On  the  insert  herewith  is  a  chart  of  the  movements  of  United 
States  Realty  for  the  three  years  1919,  1920  and  1921.  Such  a 
chart  seems  to  us  to  be  an  easy  and  yet  satisfactory  method  of 
following  fluctuations  in  individual  stocks.  It  is  a  weekly  high 
and  low  chart,  each  vertical  line  represents  one  week  and  is  drawn 
between  the  high  point  and  the  low  point  reached  in  that  week. 
Quotations  for  such  purposes  may  be  obtained  from  the  Monday 
morning  financial  pages  of  most  metropolitan  dailies. 

A  chart  of  this  nature  may  be  supplemented  by  a  study  of 
volumes.  \'olumes  for  the  week  may  be  compared  by  drawing 
lines  to  represent  the  amount  of  shares  of  that  particular  stock 
traded  in  in  that  particular  week.  Such  a  volume  line  should 
be  placed  directly  underneath  the  line  denoting  the  weekly  price 
movement  at  the  base  of  the  chart.  The  value  of  such  an  addi- 
tion to  a  chart  of  this  character  is  discussed  in  our  textbook, 
"The  Technical  Position  of  the  Market." 

This  chart  of  United  States  Realty,  by  itself,  tells  us  little  as 
regards  the  probable  future  of  the  stock  but  helps  materially  in 
backing  up  other  study.  When  considered  with  a  study  of  the 
company  itself,  it  leads  to  several  conclusions  —  one  that  no 
apparent  attempt  has  been  made  to  distribute  this  stock,  as 
evidenced  by  the  recent  small  movement  —  another  that  such 
a  stock,  earning  $15  to  $20  a  share,  is  considerably  behind  the 
general  market  movement.  The  general  industrial  average  is 
up  over  twenty  points  since  October,  1921.  The  chart  shows 
that  United  States  Realty  is  less  than  ten  points  higher  than  at 
that  time. 

As  a  matter  of  fact  United  States  Realty  sold  above  90  in 
December,  1922.  The  chart  was  originally  published  in  April, 
1922.  Thus  we  feel  that  a  chart,  such  as  we  have  outlined,  is 
clearly  of  value.  With  a  little  time  and  effort,  clients  can  carry 
on  such  charts  from  year  to  year. 


UHITED  STATES  REALTY  *   IwreoVEllTiT  CC^PAIiV 


??aakly  High  4  Low 


ilil'ii 
I''      'l.iiilll', 


l"l|,i|l|l|i|l 


i,r  ii' 


,J'"|''iv,iii",i,.  ,,n|i|i'"  ''I'    '""""i, ,  i''"",|i.i"  ii,i"'\7 


r. 


CHAPTER  VI 
WHAT  SYSTEM  MEANS  IN  FINANCE 

Taking  Advantage  of  Opportunities 

The  opportunities  which  finance  presents  are  very  real,  of 
generous  proportions,  and  available  in  one  form  or  another  at  any 
time.  It  is  true  that  risk  is  involved,  but  is  this  not  so  in  any 
phase  of  business?  Those  who  talk  of  financial  losses,  particu- 
larly Wall  Street  losses,  must  not  overlook  the  mortality  rate  in 
business  as  a  whole  shown  by  Bradstreet's,  with  the  well-known 
deduction  that  90  per  cent  of  those  who  establish  themselves  in 
business  eventually  fail.  The  only  risks  worth  talking  about  are 
comparative  risks;  and  upon  this  basis,  as  was  shown  in  Text  I, 
finance  has  a  wealth-producing  power  whose  showing  is  most 
excellent.  Whether  it  be  in  investment,  speculative  investment, 
the  transaction  of  business  as  a  financial  agent,  or  the  financing  of 
enterprises,  opportunities  to  make  money  are  not  lacking.  The 
problem  is  merely  one  of  how  best  to  take  advantage  of  them. 

What  has  been  said  so  far  in  these  Texts  indicates  clearly  the 
conviction  that  in  taking  advantage  of  these  opportunities  a  per- 
son should  proceed  systematically.  Haphazard  methods,  reck- 
less attempts  to  secure  a  profit,  do  not  succeed  in  the  long  run, 
however  large  be  the  gains  they  temporarily  may  secure.  Finan- 
cial operations  must  be  undertaken  with  discretion  and  pursued 
in  accord  with  sound  business  methods.  This  means  that  four 
steps  are  essential: 

1.  A  clear  aim. 

2.  Carefully  formulated  plang. 

3.  Consistent  execution  of  plans. 

4.  Evaluation  of  results. 

The  significance  of  these  steps  with  reference  to  the  meaning 
of  system  in  finance  will  now  be  commented  upon. 


40  Market   1 71  formation 

A  Clear  Aim 

What  am  I  trying  to  do? 

This  is  the  first  question.  It  will  not  do  to  start  with  the 
vague  idea  of  "making  some  money,"  which  is  planless  and  expen- 
sive and  liable  to  land  one  on  the  rocks;  there  should  be  clear 
knowledge  of  what  one  is  about. 

Finance  has  opportunities  for  speculation,  investment,  specu- 
lative investment,  financial  agents,  and  the  financing  of  enter- 
prises. Into  which  group  shall  I  place  myself?  Candid  answer 
to  this  question  strips  the  disguise  from  much  of  the  so-called 
"investment"  we  hear  about  —  operations  in  unseasoned  mining 
stocks,  pyramided  accounts,  "war  brides,"  "shoe-string"  margins 
and  stocks  originally  bought  for  a  "turn."  Now  it  may  be  that 
the  doing  of  these  things,  in  view  of  a  particular  person's  desires, 
abilities,  situation  and  finances,  is  entirely  proper;  but  at  any 
rate  let  him  not  deceive  himself  and  his  friends  by  calling  it  in- 
vestment. Nor  will  candid  answer  to  this  question  fail  to  disclose 
the  fact  that  not  a  few  persons  who,  priding  themselves  upon  their 
willingness  to  term  their  operations  "speculation,"  are  yet  far  re- 
moved from  this  class.  When  one  decides  that  his  tastes  are 
speculative,  rather  than  investment-like,  let  him  consider  what 
speculation  means:  Operations  wherein  intelligent  foresight  is 
employed  for  the  purpose  of  deriving  a  profit  from  price  changes. 
The  two  words  italicized  merit  special  attention.  Harsh  as  it 
may  seem,  there  appears  abundant  evidence  that  the  great 
majority  dealing  in  the  securities  not  merely  upon  the  Curb  but 
also  upon  the  Exchange  are  not  speculators  but  only  gamblers. 
The  gambler  takes  a  chance,  and  intelligent  foresight  lacking, 
that  is  what  this  great  majority  is  doing.  This  self-deception 
will  not  persist  when  the  question  is  squarely  faced:  Into  which 
group  shall  I  place  myself?     What  am  I  trying  to  do? 

Carefully  Formulated  Plans 

How  can  I  carry  out  my  aim  in  a  practical  way? 

This  is  the  second  question.     It  implies  that  we  must  not 


I 


i 


What  S  y  s  t  e  m    M  e  a  n  s   i  n  Finance        41 

only  know  what  it  is  wc  wish  to  do  but  how  to  do  it,  a  matter  of 
market  technique  and  actual  concrete  methods. 

Factors  to  be  considered  here  are:  Location.  Those  who  con- 
template dealing  in  securities  very  commonly  think  they  should 
move  to  New  York,  so  as  to  spend  their  days  within  a  stone's 
throw  of  the  Exchange.  However  desirable  this  is  for  profes- 
sionals, the  rank  and  file,  strange  to  say  perhaps,  appear  to  be 
even  more  successful  when  putting  through  their  transactions 
from  a  distance  than  when  enveloped  in  Wall  Street's  maze  of 
tickers,  gossip  and  rumors.  Sources  of  Information.  The  type 
of  dealings  decided  upon  really  determines  the  value  of  each  of 
the  various  sources  of  information.  The  man  who  tries  to  catch 
minor  fluctuations  with  Moody's  Analysis  of  Investments  as  his 
guide  has  quite  as  unprofitable  a  time  of  it  as  the  investor  who 
lets  the  ticker  cloud  his  judgment  on  the  long  pull.  Time  Avail- 
able. Persons  who  devote  their  entire  time  to  the  market,  who 
live,  eat,  and  sleep  in  Wall  Street,  as  is  said  of  a  certain  noted 
plunger,  can  attempt  profitably  methods  of  trading  which  some 
business  man,  who  studies  the  market  only  in  his  leisure  time, 
will  not  find  worth  his  while.  Watching  the  ticker  does  not 
fit  in  well  with  executive  success  in  the  average  business,  and 
fortunately  it  is  not  at  all  necessary  —  undesirable,  even,  in  cer- 
tain types  of  dealing.  Then  there  are  matters  of  Capital, 
Knowledge  and  Skill  which  must  also  be  considered  in  drawing 
up  the  plan. 

This  whole  matter  of  technique  and  actual  concrete  methods 
is  to  be  gone  into  so  fully  in  subsequent  Texts  that  it  need  not  be 
discussed  further  at  this  point.  It  is  an  important  subject  which 
deserves  treatment  in  detail  in  connection  with  each  main  type 
of  financial  operations. 

Consistent  Execution  of  Plans 

Can  I  carry  out  my  plans,  consistently? 

This  is  the  third  question.  This  means  that  once  a  general 
plan  of  campaign  is  adopted  and  adequate  reasons  for  modifying 
it  do  not  later  develop,  will  power,  the  captain  of  the  financier's 
ship,  pushes  it  through  to  completion. 


42  M  ar  k  e  t    I  nf  o  r  m  a  t  i  o  n 

Those  who  transact  business  for  the  first  time  in  Wall  Street 
usually  are  investors  and  purchasers  of  what  they  consider 
investment  issues.  Later,  the  desire  to  hold  stocks  that  "go  up" 
in  addition  to  returning  an  income  induces  them  to  turn  toward 
speculative  investment.  The  allurements  of  profits  secured 
through  changes  in  price  develops  in  them  a  desire  for  specu- 
lation, with  stocks  carried  on  margin  and  purchased  in  the  expec- 
tation solely  that  they  will  go  up.  This  leads  more  or  less 
rapidly,  according  to  the  severity  of  the  case,  from  short-pull 
operating  to  attempts  to  catch  the  daily  fluctuations,  about  which 
time  we  find  the  once  staid  investor  has  transformed  himself 
into  a  high  strung,  plunging  gambler. 

Those  who  plan  at  the  start  to  speculate  in  connection  with 
secondary  swings  often  undergo  a  somewhat  similar  experience 
but  in  reversed  order.  Having  loaded  himself  comfortably  with 
stocks,  on  margin  as  a  rule,  a  trader  possibly  finds  the  market 
goes  against  him.  Since  he  expected  to  close  out  his  stock  with 
a  few  points  profit  at  most,  he  now  as  a  trader  should  cut  his 
losses  promptly.  Here  enters  a  twist  in  reasoning.  Disregard- 
ing the  fact  that  as  a  trader  he  should  retain  the  trader's  attitude 
of  mind,  he  attempts  to  bolster  up  his  opinions  by  reference 
to  general  conditions,  the  earnings  of  stocks,  etc.  Perhaps 
general  conditions  are  good  and  the  stock  on  account  of  excellent 
earnings  may  in  time  come  back.  Nevertheless,  his  judgment  at 
the  time  of  making  the  commitment  was  based  upon  the  assump- 
tion that  this  was  a  trade,  not  an  investment,  which  proves  that 
so  far  as  his  position  is  concerned  he  is  trying  to  swap  horses 
while  crossing  the  stream.  Consequently,  the  market  may  or 
may  not  come  back  with  the  result  that  eventually,  discouraged, 
he  closes  out  with  a  big  loss  or,  disgusted,  remains  "hung  up" 
with  stock  which  only  by  miscalculation  he  has  on  his  hands. 
Traders  whose  plans  miscarry  in  this  way  are  termed  "involun- 
tary investors."     Like  the  poor,  they  are  always  with  us. 

Adequate  reasons  which  develop  after  a  plan  has  first  been 
determined  should  of  course,  be  permitted  later  to  modify  it. 
Yet  mistakes,  lack  of  decision,  and  inconstancy  do  not  represent 
adequate  reasons,  and  they  must  not  prevent  a  person  from 
pushing  this  plan  through. 


IV  h  at   S  y  s  t  e  m    M  e  a  n  s    i  n   F  i  n  a  n  c  e       43 

Evaluation  of  Results 

What  check  have  I  on  results? 

This  is  the  fourth  question.  The  point  here  is  that  when 
profits  are  made  a  person  knows  how  they  were  made  anfl  when 
losses  occur  he  has  a  check  upon  them,  too. 

This  is  a  matter  in  which  the  attitude  of  the  average  out- 
sider, in  his  heedless  enthusiasm  over  gains  and  self-deceiving 
attempts  to  ignore  losses,  needs  seriously  to  be  reformed  if  he 
himself  is  to  improve  and  remain  long  and  profitably  in  the 
Street. 

In  connection  with  the  several  parts  of  the  Course  records 
have  been  devised  which,  with  a  minimum  of  effort,  give  the  sub- 
scriber the  close  check  upon  results  wliich  we  think  he  ought  to 
have. 

Financial  Management 

The  four  steps  which  have  just  been  cited  —  a  clear  aim,  care- 
fully formulated  plans,  consistent  execution  of  these  plans,  and 
close  check  upon  the  results  secured  —  mean  that  you,  as  a  per- 
son engaged  in  financial  operations,  should  take  a  critical  attitude 
toward  your  work  and  dismiss  the  idea  that  the  slow  old  school 
of  experience  is  all  that  counts  in  money  making.  But  they 
include  more  even  than  that. 

The  management  of  one's  finances  calls  for  a  certain  quality 
which  the  builders  of  American  business  in  their  oil,  steel,  rail- 
road, motor,  machinery  and  other  projects  have  exhibited  in  full 
measure,  viz.,  self-reliance.  They  knew  what  they  were  about 
and  were  convinced  they  could  see  the  thing  through.  Does  this 
attitude  characterize  the  average  person  in  finance?  It  does  not. 
The  vast  majority  do  not  trust  their  own  judgment.  They  are 
hesitating,  doubtful,  and  changeable  in  turn. 

Would  James  B.  Duke  ever  have  pushed  the  tobacco  busi- 
ness with  such  profit  to  himself  if  he  had  been  merely  a  weather 
vane,  veered  by  what  other  people  thought  of  him  and  of  tobacco? 
When  an  occasional  country  merchant  declares  the  cash  regis- 
ter is  no  good,  does  John   H.   Patterson   think  of  closing  down 


44  Market    I  nf  o  r  ?na  tion 

his  factory?  Does  Charles  Schwab  draw  his  ideas  on  how  to 
manage  Bethlehem  Steel  from  some  hanger-on  in  a  broker's 
office?  These  men  know  their  business.  Their  knowledge  rests 
upon  a  firm  foundation  and  they  rely  upon  their  own  judgment. 
While  open  to  advice  and  cultivating  all  sources  of  information, 
in  the  last  analysis  they  depend  upon  themselves. 

Who  Directs  the  Enterprise? 

The  big  profits  of  an  enterprise  go  to  men  who  direct  its 
affairs.  Yet  when  a  man  in  his  financial  operations  without  self- 
reliance  leans  upon  brokers,  bankers,  newspapers,  friends  and 
chance  acquaintances,  they  and  not  he  direct  his  enterprise.  This 
fact  in  itself  shows  how  important  in  the  securing  of  profits  is 
that  sound  knowledge  of  principles,  technique  and  methods  upon 
which  real  self-confidence  is  based  and  which  enables  its  pos- 
sessors to  win  a  manager's  full  profit. 

You  should  learn  to  depend  upon  yourself. 

In  outlining  the  present  Course,  our  chief  purpose  has  been 
the  building  up  within  the  subscriber  of  sound  knowledge  and 
correct  methods  of  analysis,  the  cultivation  of  his  self-reliance 
and  financial  skill.  The  various  features  of  the  Course  —  its 
Texts,  Assignments,  Test  Questions,  Key  Problems,  and  the 
Investment  and  Speculative  Bulletin  —  have  been  planned  and 
co-ordinated  with  this  end  in  view,  that  the  subscriber  will  be- 
come able  to  depend  upon  himself. 

The  Use  of  the  Bulletin  Service 

The  Investment  and  Speculative  Bulletin  Service  is  given 
you  to  supplement  your  education,  to  assist  you  in  reasoning, 
diagnosis,  and  financial  action,  not  to  lead. 

In  speculation  and  investment,  just  as  in  any  other  business 
enterprise,  all  success  must  come  from  within  —  not  from  with- 
out. Unbiased  advice  is  certainly  valuable,  but  you  must  pos- 
sess the  ability  to  interpret  such  advice  to  your  own  individual 
situation.  Advisory  Bulletins  of  any  type,  whether  finance, 
business,  law,  or  medicine,  should  be  used  as  Advice,  not  as  Com- 


What    System    Means   in   Finance      45 

niand,  also  to  assist  in  checking  up  one's  own  decision,  but  never 
simply  as  a  leader. 

In  our  Bulletins  it  is  our  endeavor  to  set  before  yf)u  our 
views  as  to  the  best  course  of  action  for  you  to  take  in  regard 
to  both  investment  and  speculative  commitments.  This  infor- 
mation is  based  on  as  thorough  a  consideration  of  funchimental 
stock  market,  bond  market,  and  economic  factors  the  world 
over,  as  we  can  give. 

Our  purpose  is  to  cover  only  the  swings  of  the  market  that 
are  governed  by  such  factors.  We  do  not  attem]:)t  to  predict 
week-to-week  or  month-to-month  movements,  except  as  they 
are  in  relation  to  the  developments  of  these  factors,  as  we  see 
them. 

The  swings  of  the  market  over  a  series  of  years  follow  the 
general  trend  of  these  factors  closely.  The  week-to-weck  swings 
of  the  market  are  largely  the  result  of  technical  conditions  on 
the  floor  of  the  Exchange  and  sometimes  the  result  of  concerted 
action  on  the  part  of  professional  traders.  As  a  result,  specu- 
lative securities  can  move  temporarily  in  direct  conflict  to 
the  economic  trend  of  events.  Rather  than  attempt  to  catch 
such  movements,  conservatism  looking  to  the  constant  building 
up  of  one's  speculative  and  investment  funds,  suggests  avoiding 
them  even  at  the  cost  of  slight  temporary  profit. 

Neither  ourselves  or  anyone  else  can  pretend  to  predict  such 
day-to-day  or  week-to-week  movements.  We  do  know,  however, 
that  their  main  purpose  is  to  distribute  securities  to  the  public 
at  prices  which  in  many  cases  are  not  justified.  It  is  for  this 
reason  that  we  urge  clients  to  avoid  them.  Only  in  this  way 
can  you  be  certain  of  having  your  Speculative  and  Investment 
funds  in  satisfactory  condition  so  that  when  sound  buying  oppor- 
tunities are  at  hand  you  will  be  in  a  position  to  take  full  advantage 
of  them. 

Two  of  the  secrets  of  successful  handling  of  money  is  patience 
and  lack  of  greed.  Each  year  offers  one  or  two  really  sound 
opportunities  for  the  profitable  purchase  of  securities.  It  is  the 
purpose  of  this  Bulletin  to  have  you  in  a  position  to  take  advan- 
tage of  such  opportunities  as  they  arise. 


TEST  QUESTIONS 
"MARKET  INFORMATION" 

The  Test  Questions  which  are  unstarred  can  be  answered 
directly  from  the  Text  discussion.  You  will  find  them  helpful 
for  purposes  of  review. 

The  Questions  which  are  starred  call  for  original  thought, 
the  ability  to  apply  the  knowledge  gained  from  the  Text  to  the 
solution  of  new  problems. 

1.  What  is  the  Wall  Street  attitude  toward  news? 

2.  A  London  operator  testified  that  he  had  paid  enormous 
sums  in  cash  to  keep  the  newspapers  from  attacking  his  ventures. 
What  other  methods  do  operators  employ  at  times  in  securing 
favorable  publicity,  or  at  least  not  unfavorable  publicity? 

*3.  Why  do  tips  "straight  from  the  inside,"  etc.,  exert  such  a 
large  influence  as  they  do? 

4.  Show  how  supply  and  demand,  and  not  necessarily  the 
deliberate  intent  to  deceive,  causes  newspapers  to  print  what 
often  is  most  unreliable,  and  one-sided  information. 

*5.  When  Crucible  Steel  in  1915  had  advanced  from  around 
$15  up  to  S45  a  share,  this  statement  from  a  director  and  member 
of  the  Executive  Committee  appeared  upon  the  news  ticker: 

"The  common  stock  is  in  the  hands  of  people  who  evidently 
intend  to  hand  it  to  others  at  the  highest  price  at  which  it  can 
be  sold,  and  this  evidently  is  the  reason  for  the  large  mis-state- 
ment made  about  war-order  contracts." 

W^ere  you  to  read  such  an  item,  what  interpretation  would 
you  place  upon  it?     What,  likely,  would  be  its  effect  upon  prices? 

6.  How  did  the  famous  "Peace  Note  Leak"  come  about? 

7  What  are  the  chief  sources  of  market  news?  The  main 
channels  through  wdiich  it  is  disseminated? 

8.  What  are  the  prospects  for  a  higher  grade,  and  more  reliable, 
news  in  Wall  Street?  What  can  each  one  do  personally  to  assist 
in  bringing  this  about? 

*9.  "One  of  the  customers  in  my  broker's  office  never  looks  at 
papers  or  the  news  ticker.  He  says  his  charts,  of  which  he  keeps 
a  considerable  number,  tell  him  just  what  to  do.  What  is  there 
in  this  Theory  of  "double  tops"  and  "double  bottoms"? 

10.  Jot  down  on  a  sheet  of  paper  the  four  essentials  of  system 
in  finance,  and  under  each  specify  several  detailed  methods  which 
you  expect  to  employ  in  carrying  it  out. 


ANSWERS  TO  STARRED  QUESTIONS 
"MARKET  INFORMATION" 

*3.  "On  the  fringe  of  the  legitimate  business  of  buying  and  selling  stocks 
and  bonds,"  says  A.  Barton  Hepburn,  one  of  New  York's  famous  bankers 
of  the  old  school,  "there  hangs  an  army  of  promotors,  gamblers  and  jobbers 
who  are  keen  to  take  advantage  of  lack  of  investment  knowledge.  They 
have  a  system  of  disseminating  information  for  the  purpose  of  inducing 
speculation  in  certain  securities  which  it  is  to  their  interest  to  promote.  By 
means  of  discreetly  placed  'confidential  information'  they  can  spread  news 
over  the  country  in  a  few  hours.  The  remarkable  thing  about  this  system  is 
the  number  of  persons  who  have  faith  in  such  tips.  It  is  true  that  men  believe 
the  things  that  they  want  to  believe." 

See  also  "Manipulation  and  Market  Leadership,"  pages  47  and  48. 

*5.  This  statement  would  be  open  to  at  least  two  interpretations.  "This 
man  is  honest  and  wants  to  let  the  truth  be  known,"  or  "This  man  would  like 
to  depress  the  stock  so  he  can  accumulate  it." 

The  latter  view  was  taken  by  the  Wall  Street  Journal,  which  credited 
this  director  with  having  made  a  million  and  a  half  out  of  the  stock,  which 
he  closed  out  at  such  high  prices. 

The  stock,  at  that  time,  slumped  badly. 

*9.  Charts  serve  a  very  useful  purpose,  and  we  would  not  draw  an  arbi- 
trary line  limiting  their  service.  At  the  same  time,  dependence  upon  charts 
alone,  believing  that  they  tell  one  "just  what  to  do"  that  when  stock  makes 
"double  tops"  it  should  be  sold  and  "double  bottoms"  it  should  be  bought, 
represents  what  we  term  "chart  reading,"  a  poor  use  of  charts,  which  in  the 
long  run  is  almost  certain  to  result  in  loss. 

Use  charts  to  assist,  not  to  replace,  judgment. 


Garden  City  Press,  Inc. 
Newton,  Mass. 


UNWERSITY  6t  CALIFOia^<iA 

AT 

LOS  ANGELES 

LIBRARY 


^'f> 


UNIVERSITY  OF  CALIFORNIA,  LOS  ANGELES 

THE  UNIVERSITY  LIBRARY 

This  book  is  DUE  on  the  last  date  stamped  below 


m  ^^    ^^'l     m  mi8 

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»NTERLlEl|?ARY  LOANS 

JAN    41977 

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30  1964 


A.M.  ''.M 

7|r|9H0|i;  (1211.1213141.51^ 


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25m-2, '43(5205) 


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